Question

At the time of death of a partner, balance amount in Investment Fluctuation Reserve after meeting fall in the value of Investment is _____ to _____.

• A. Credited; Revaluation Account
• B. Credited; All Partner's Capital Accounts
• C. Debited; Deceased Partner's Capital Account
• D. Credited; Deceased Partner's Capital Account

Hint:

Always remember: First adjust the actual loss in investment value from IFR.
Remaining reserve is distributed among all partners in old ratio.

Answer 1

The Correct Option is B

Concept: Investment Fluctuation Reserve (IFR) is a reserve created to cover possible losses arising from a fall in the market value of investments. At the time of retirement or death of a partner:
• all accumulated reserves and profits must be distributed among all partners,
• unless the reserve is still required for a known liability or reduction in asset value. Thus, before distributing the reserve:
• first adjust the fall in investment value,
• then distribute the remaining balance among all partners in their old profit-sharing ratio.

Step 1: Understanding the treatment of Investment Fluctuation Reserve. Suppose: \[ \text{Investment Fluctuation Reserve} = ₹50,000 \] and actual fall in value of investments: \[ = ₹20,000 \] Then: \[ \text{Remaining Reserve} = 50,000 - 20,000 = ₹30,000 \] This remaining amount is no longer required. Therefore, it becomes accumulated profit and must be distributed among all partners.

Step 2: Accounting treatment. The journal entry for distributing remaining reserve is: \[ \text{Investment Fluctuation Reserve A/c Dr.} \] \[ \text{To All Partners' Capital A/cs} \] Thus, the reserve account is debited and partners' capital accounts are credited.

Step 3: Evaluating options carefully. Option (A): \[ \text{Credited to Revaluation Account} \] Incorrect because reserve balance is transferred directly to partners' capital accounts and not to revaluation account. Option (B): \[ \text{Credited to All Partner's Capital Accounts} \] Correct because the remaining reserve after adjustment belongs to all partners. Option (C): \[ \text{Debited to Deceased Partner's Capital Account} \] Incorrect because reserve is not a loss after adjustment. Option (D): \[ \text{Credited to Deceased Partner's Capital Account} \] Incorrect because the reserve belongs to all partners, not only the deceased partner. Final Conclusion: The balance amount in Investment Fluctuation Reserve after meeting fall in value of investments is: \[ \boxed{\text{Credited to All Partners' Capital Accounts}} \] Hence, the correct answer is: \[ \boxed{\text{(B)}} \]